Spoke Fund® Boards

Bonds rallying, broad market futures up, WTI up 1.2% to $62, nat gas flat.

Coronavirus numbers continue to improve. CDC approved the single-shot J&J vaccine last night. Rollout will be immediate.

Through peak earnings week for Tarpon. See the weekend post for a summary of links. Still playing a little catch-up on watch list names today.

OPEC+ monitoring committee meeting on Wednesday, and then The Show is on Thursday. And in case you missed it, here were my thoughts from this post last week:

>>>

>>>

Today's Sign Renewables Are A Bubble:

Hindenberg on clean energy firm $ORA: Ormat: Dirty Dealings in ‘Clean’ Energy

Today we reveal how ESG-darling Ormat, a developer and operator of geothermal power plants, has engaged in what we believe to be widespread and systematic acts of international corruption.

Not endorsing any opinions here - I don't know Ormat nor Hindenberg well - but IMHO of note because these sorta allegations seem to pop-up in the late stages of a bubble.

Monday assorted links:

1. Platts on this week's OPEC+ meeting:

Rallying oil market has OPEC+ priming the pump, as ministers balance caution with profit

2. WSJ: Iran Rejects Offer of Direct U.S. Nuclear Talks, Ratcheting Up Tension With West

Iran looking for leverage. Skeptical they will get much.

Iran rejected a European Union offer to hold direct nuclear talks with the U.S. in the coming days, risking renewed tension between Tehran and Western capitals.

Senior Western diplomats said Iran’s response doesn’t quash the Biden administration’s hopes of reviving diplomatic efforts to restore the 2015 nuclear deal, struck between Iran and six world powers and abandoned by the Trump administration in 2018. But they said it seemed to set a deadlock: Iran wants a guarantee it wouldn’t walk away from a meeting with the U.S. without some sanctions relief, which Washington has so far ruled out.

Also saw reports over the weekend that Iran fired missiles on an Israeli vessel, and that Israel fired on Iranian positions in Syria.

3. Reuters: Biden in no rush to lift Venezuela sanctions, seeks 'serious steps' by Maduro

Disclaimer: This post nor any of the material linked to herein in any way constitutes investment advice. Investing may cause capital loss. The publication of this note is in no way a solicitation or offer to sell securities or investment advisory services.

Notes from a same-day replay. Shares closed up 0.30% on a bigger down day for the broader market and sector.

Release was here, first look was here, full preso here. Select slides below.

Call Notes...

CEO: Weathered storm, all key mets at or above mid-point. Raised in July and November.

Growth capex higher than guide due to PHP pull-forward.

PHP start-up and JV contribs = $6 annual divvy. All 4 pipes in service, GCX and PHP full, long-term.

Shin Oak and EPIC impacted by reduced drilling in Delaware. Rig count there 116 down from year ago, upside as activity increases.

Looking for 3rd party biz, opex down by 1/3 YOY. Some cost savings still to capture. No injuries among our guys. Absences due to COVID over holidays, but none among employees.

Focused on op efficiency and environ footprint.

Number of projects with ESG...vapor recovery on tanks, compressed air on pneumatics, nat gas leak detection, test 2x required, less methane in blowdown. Using electric compression, too. Back-up gens for Diamond Cryo. Less flaring, light pollution being addressed near observatory, too.

On Q4...earnings boost from PHP, offset lower G&P vols from reduced drilling. Some success on new revenue streams...processing off-spec condensate vols more in Q4, new compression outside Alpine High, load shedding at cryo plant.

Positive momentum, vaccines coming, renewed interest in drilling and completions.

Focus this year is capture of 3rd party volumes for G&P, including expanding biz with APA outside Alpine High. Deals to optimize underutilized assets - divestment or redeployment.

ESG - to reduce flaring 10%, blowdowns 30%, protecting divvy while looking at refi the preferreds.

All 4 pipes in service full year. Negligible growth capex after Q1.

CFO: hitting deets from release, EBITDA and growth capex...

Walking thru accounting of derivs, volumes, see release.

Guidance (as per release): consistent with update in November. E&Ps saying capital will flex, we will adjust outlook, too. Pricing improved, activity up, but priority is op discipline and returning cap versus production growth. May impact our 3rd party biz capture in G&P, less urgency.

JV pipe biz: conservative on util of Shin Oak and EPIC...no 3rd party biz or increase in NGLs, both would be upside (more on this later).

Alpine High - 5 more ducs.

Still assessing impacts of freeze last week, to update in May.

Minimal maint capex on JV pipes, new, $5M on G&P - in guidance.

Plenty of liquidity $800M revolver, good til '23.

Re-fi of preferreds...multiple options, will protect divvy and balance sheet.

Seeing add'l completions at Alpine High, upside from 3rd party.

Going to Q&A at minute 15.

Q1. Credit Suisse. Gas prices up, 3rd party opps improving?

A. Very positive about it, should create some opps. Producers being careful not to get out over skiis, but positive prospects in and around Alpine High. Would come later in year, not right now, having some conversations. Encouraged by completion of 2 DUCs APA mentioned this morning...5 more later this year.

Better year ahead of us in terms of 3rd party prospects. Found a few last year even though tough, expect to do even better this year. Price on oil, gas and assoc gas should help.

Q2. Preferred way to refi preferreds?

A. Too early, have some retained cash flow at midpoint of DCF guidance - assumes no asset sales...ended last yr with $25M of cash on BS, so have cash, looking at all sorts of alts but early.

Perfect timing on crossover of MOIC and IRR is late '21 early '22 so have time but good to see cap markets and high yield opening back up and at attractive terms.

Focus to keep manageable leverage and protect dividend.

Q3. US Capital Advisors. 7 ducs that Apache talked about - any more? Active rigs anytime soon in Alpine High?

A. Those 7 are ones will do in 2021, have others, will see if will go after others in future. Depends on economics. APA commented this morning that first 2 ducs performing very well, may have opp to bring in additional capital to drill more in Alpine High, will see. Positive signal.

Q4. Two liquids pipes (so Shin Oak and EPIC) - if SO flat yoy, what does mean for util, how much could add?

A. Kinda hard to say, not providing that. Assuming yoy flat volumes, barring any material impact from freeze off. At $60 to $65 oil, will monitor, is some upside, will continue to monitor.

Another impact for NGL pipes is ethane rejections...gas up, C3+ up, ethane lagging a bit, will counterbalance growth from y-grade. Little rejection last year. YOY flat is appropriate for today, but will update in a few months. Could be upside to that number.

Q5. EPIC crude term loan...timeline on getting distros from there?

A. Timeline pushed out after COVID. Can't speak too much yet, no covvie issues, 7 year term from 2019, plenty of runway and is public so can see where marked. Not too onerous, but any near term distros to equity pushed out for some time.

Q6. Overall leverage of EPIC?

A. Let me check if we can even speak to that, not sure how much we should speak publicly to that.

Call done minute 26. CEO closing thoughts...enter '21 with nice momentum...no ALTM assets operate on federal lands. Need a resilient and reliable energy supply. Will generate FCF all year, will return cap to shareholders, divvy on the way next month.

Good call, good tone. Altus was a bright spot in an ugly tape today.

More importantly, though, becoming clearer that they're sandbagging that '21 guidance. Say that cuz they will tap 7 ducs in Alpine High this year (not in guide), both EPIC and Shin Oak bought should contribute considerably more this year that discussed so far (note the phrase in both of those slides..."forward outlook may benefit from an improved macro environment")...and current guidance still assumes PHP will start up later in Q1...but actually already started up on January 1.

To be clear - conservative is good, from their perspective, given what they went thru prior to us getting involved...but seems like good odds we see a bump up in guidance in conjunction with Q1 report.

And though we've seen a nice run in our shares since last fall...still a ways to go, IMHO.

As back-of-the-envelope as possible...$190M in distributable free cash flow (high end of range) would be $11.69/share. Put a still-too-cheap FCF multiple of 10x on that (call it rough mix of low multiple on G&P assets, high on new pipes, fully subscribed for 10 years, nice rates) and ya get $117 per share. Before adding (a) third party, (b) actual full year PHP cash flows, (c) NGL uplift from Shin Oak and (d) more free cash flow from EPIC, too. Eventually. And never mind any other deals/pipes...and/or seeing Alpine High drilling perhaps fire back up at scale some day. To be sure, kinda slim chance on that last one - at least while still owned by APA - but even those chances did increase a bit further from zero given some of those comments on the call there...so not impossible, eh? I mean, just this week we landed a little go-cart on Mars, people.

Also is now a pretty clear path here to take out those high-cost preferreds.

And in the meantime, we get paid 54% a year to wait on our shares. While they throw off plenty of free cash...and run the biz for value accretion at their major shareholder (unowned $APA)...and little ole us, too, I suppose...meaning that cash is going directly to debt paydown, not growth.

Een nuttin', mon!

<end bad Bahamian accent>

Select slides:




















Disclaimer: This post nor any of the material linked to herein in any way constitutes investment advice. Investing may cause capital loss. The publication of this note is in no way a solicitation or offer to sell securities or investment advisory services.

WTI up 1.25% to $62.44. Nat gas off 0.80% to $2.86.

Peak-earnings-call week for Tarpon continues.

In the meantime, WSJ with a good primer related to some recent discussion on here:

Why Higher Rates Are Hammering Big Tech

Rising long-term Treasury yields ultimately might not pose much of a problem for most stocks. But the bout of indigestion that higher yields are already giving to some of the past year’s biggest winners—shares of companies including Amazon.com, Apple, Tesla and Microsoft — could prove more lasting.

Some of that is because these companies’ steep valuations make them vulnerable to rising yields. But it also stems from how, even as the Covid-19 pandemic wreaked havoc, those stocks did so well.

Wednesday Assorted Links:

1. BBG: Whispers of $100 Oil Return as Crude Shakes Off Covid’s Clasp

While oil’s dizzying collapse is still fresh for many traders, rumblings are starting to emerge that by the end of next year prices could once again top $100 a barrel.

2. BBG: Socar Trading Head Expects Oil to Hit $80 a Barrel This Year.

I mean, I've never heard of 'Socar Trading,' either - but they're really confirming my priors here, so I'm all for it. And in my own defense - I have been to Baku, which maybe makes this link legit...?

Oil prices will hit $80 a barrel this year as demand comes roaring back and producers won’t be able to immediately respond with sufficient supply, Socar Trading SA said, joining a chorus of bullish calls on the market.

Hayal Ahmadzada, Socar’s chief trading officer, said the glut of excess oil stocks that built up in 2020 in response to the pandemic will be fully drawn down by the summer. At the same time, soaring prices for steel used in pipes, wells and fittings as well as the high cost of capital for producers will crimp a meaningful supply response by an already hobbled industry even as demand returns.

“I will not be surprised if we see $80 a barrel in summer or before year-end and above $100 a barrel in the next 18 to 24 months,” Ahmadzada said in an interview from Baku, Azerbaijan.

3. Platts: Global oil demand likely to rebound to pre-COVID levels by end-2021: analysts

4. Energy Intel: Shale Giants Hold the Line Despite $60 Oil

Benchmark US crude prices have jumped more than 25% since the start of the year. But the return of $60 oil isn't tempting the country's largest shale producers to loosen the purse strings.

Management teams have used their recent earnings conference calls to repeatedly assure investors they will remain steadfast in prioritizing capital discipline over growth, with many maintaining guidance put forward when oil was stuck in the $40s.

"If commodity prices surprise to the upside, we will remain disciplined and won't chase growth. If the recent commodity price strength persists, we will not raise our capital spending … we will simply generate even more free cash flow," said Marathon Oil CEO Lee Tillman, capturing the sentiment echoed by others.

5. Today's "supercycle" sighting:

A New Commodities Supercycle Is Looming

Kinda derivative, but I'll allow it.

6. And here you go @Ryan Y:

Will ARK Invest Blow Up?. Not endorsing that kinda fate, you understand...

Three more Q4 calls this morning, more on today's Company News thread.

Disclaimer: This post nor any of the material linked to herein in any way constitutes investment advice. Investing may cause capital loss. The publication of this note is in no way a solicitation or offer to sell securities or investment advisory services.